Yahoo Finance Central Puerto SA Stock Is Believed To Be Possible Value Trap
- By GF Value
The stock of Central Puerto SA (NYSE:CEPU, 30-year Financials) gives every indication of being possible value trap, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $2.07 per share and the market cap of $313.4 million, Central Puerto SA stock is estimated to be possible value trap. GF Value for Central Puerto SA is shown in the chart below.
The reason we think that Central Puerto SA stock might be a value trap is because Central Puerto SA has an Altman Z-score of 1.11, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Central Puerto SA has a cash-to-debt ratio of 0.29, which ranks in the middle range of the companies in the industry of Utilities - Regulated. Based on this, GuruFocus ranks Central Puerto SA's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Central Puerto SA over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Central Puerto SA has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $470.2 million and earnings of $0.562 a share. Its operating margin is 59.00%, which ranks better than 98% of the companies in the industry of Utilities - Regulated. Overall, the profitability of Central Puerto SA is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Central Puerto SA over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Central Puerto SA is 37.3%, which ranks better than 96% of the companies in the industry of Utilities - Regulated. The 3-year average EBITDA growth is 21.3%, which ranks better than 84% of the companies in the industry of Utilities - Regulated.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Central Puerto SA's return on invested capital is 9.38, and its cost of capital is 6.84. The historical ROIC vs WACC comparison of Central Puerto SA is shown below:
Overall, the stock of Central Puerto SA (NYSE:CEPU, 30-year Financials) gives every indication of being possible value trap. The company's financial condition is poor and its profitability is strong. Its growth ranks better than 84% of the companies in the industry of Utilities - Regulated. To learn more about Central Puerto SA stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
